Momentum and Credit Rating

ABSTRACT

This paper establishes a robust link between momentum and credit rating. Momentum profitability is large and significant among
low‐grade firms, but it is nonexistent among high‐grade firms. The momentum payoffs documented in the literature are generated
by low‐grade firms that account for less than 4% of the overall market capitalization of rated firms. The momentum payoff
differential across credit rating groups is unexplained by firm size, firm age, analyst forecast dispersion, leverage, return
volatility, and cash flow volatility.